H&M posts third straight fourth-quarter profit fall

Photo: Bloomberg

Hennes & Mauritz AB (H&M), Europe’s second-largest clothing retailer, reported a third straight drop in fourth-quarter profit as European consumers reined in clothing spending and the company invested in new stores.

Net income slid 1.3 percent to 5.29 billion kronor (US$83 million) in the three months ended Nov. 30, Stockholm-based H&M said in a statement yesterday. That beat the 5.2 billion kronor average estimate of 16 analysts compiled by Bloomberg.

“H&M continues to stand strong in a challenging clothing market, which in many countries has been even more challenging in 2012 compared to 2011,” CEO Karl-Johan Persson said in a statement.

The profit drop halts a revival at the fashion retailer, which had reported earnings growth in each of the last three quarters after five consecutive declines. H&M makes most of its revenue from the euro-area, where governments are cutting spending and the jobless rate is at a record 11.8 percent as the economy continues to suffer from the sovereign-debt crisis.

“In the near term, we believe continued subdued performance in some of H&M’s key western European markets will lead to muted like-for-like sales growth, limiting the company’s ability to expand margins,” Jamie Merriman, an analyst at Sanford C. Bernstein, said in a note on Wednesday last week. “Over the medium term, we see rising competitive pressure in the value apparel segment as well as rising input cost inflation in Asia.”

While H&M’s sales in the quarter including VAT gained 9 percent at local currency rates, the gross margin narrowed to 61.6 percent of sales from 61.9 percent as the retailer invested in new brands and its stores.

H&M fell 0.3 percent to 234.90 kronor in Stockholm trading on Tuesday. The stock has risen 4.6 percent this year, having largely stagnated over the previous two years.

“A rebound from current sales trends, optimism regarding a significant improvement in the profitability of the business, as well as the attractive prospects for continued growth long-term, is nearly fully reflected in the share price,” Richard Jaffe, an analyst at Stifel Nicolaus & Co in New York, said in a note on Monday.

First-quarter results may be held back by “uncertainty regarding the economic outlook in the EU and US,” he said.

H&M, which sold a collection by fashion house Maison Martin Margiela in November, said fourth-quarter same-store sales were unchanged. Comparable December sales dropped 2 percent, the retailer said.

The dividend for the year was unchanged at 9.50 kronor a share. The retailer plans to open about 325 stores this year.

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